Health Care Prices and Spending Accelerating

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April 13, 2018

Ann Arbor, MI — In March 2018, the Health Care Price Index rose by 2.2% compared to the previous year, fractionally higher than in February, and the highest rate since January 2012. Driving overall price acceleration is high hospital price growth of 3.7%, barely down from 3.8% in February—a more than 8-year high. This was driven by continuing high hospital price growth for Medicare (4.6%)—the highest Medicare rate since November 2009.

Year-over-year health spending growth has increased from 4.5% in December 2017 to 4.9% in February 2018. This acceleration has occurred in spite of recent declines in coverage. The more recent acceleration in spending has been led by hospital spending growth, which represents 32% of national health spending and which stands at 4.3% in February, up from a recent low of 2.7% in November 2017. This has been partially offset by a decline in the growth of spending on physician and clinical services, representing 20% of national health spending, which reached a recent peak of 6.1% in July 2017 and has declined steadily to a rate of 4.4% in February 2018.

Through the first quarter (Q1) of 2018, the health sector added 70,000 jobs, consistent with 2017 average quarterly growth. A slow rise in hospital hiring offset slight declines in hiring in ambulatory settings and nursing and residential care. Hospitals added 30,000 jobs in Q1 2018, continuing a rise in hospital hiring that began last year. In 2017, hospitals added 8,000 jobs in Q1; 18,000 in Q2; 24,000 in Q3; and 27,000 in Q4.

"Health spending is outpacing the 4.6% growth in GDP in early 2018, but the gap is small by historical standards," says Altarum Fellow Dr. Charles Roehrig. "More worrisome is the comparison to growth in full employment GDP, known as ‘potential’ GDP, which the Congressional Budget Office is projecting to grow by 3.8% in 2018. As noted in our triangle of painful choices, this amount of excess growth is not compatible with a long-term balanced federal budget, particularly in view of the recent tax cut."

Health Care Spending

At $3.60 trillion (seasonally adjusted annual rate), national health spending in February 2018 was 4.9% higher than it was in February 2017. Year-over-year spending increased in all major categories, with nursing home care growing the fastest, at 7.9%, and prescription drugs the slowest, at 4.2%.

Health Care Employment

Health care added 22,400 new jobs in March 2018, below the 12-month average of 25,300 new jobs per month. Hospitals added 9,900 jobs in March, higher than the 12-month average of 7,200 but continuing the steady growth in hiring seen since early 2017.

Health Care Prices

Health care prices in March 2018 rose 2.2% above March 2017, its highest growth rate since January 2012 (fractionally above the February 2018 growth rate). Year-over-year hospital price growth fell to 3.7% from 3.8% in February (its highest rate since November 2009). Physician and clinical services price growth rose to a still low 0.6% in March. Drug price growth fell to 1.9% in March, from 1.9% in February.